FAQs: Pakistan Super League Pvt Ltd

Introduction

There has been a lot of hue and cry on the issue of setting up the Pakistan Super League (PSL) as a separate entity from the Pakistan Cricket Board (PCB). Most of the criticism, however, is based on a lack of information. Dissemination of such misinformation is hurting PSL and its various stakeholders, as well as cricket prospects in Pakistan. Here are the answers to some frequently asked questions.

Q: Why did it take PCB so many years to launch PSL when other foreign boards launched such leagues a long time ago?

Ans: It was nothing short of a miracle that PCB was able to launch PSL in Feb 2016. For eight years, three different PCB administrations under three different Chairmen toyed with the idea and dropped it for several reasons:

(1) PCB did not have the managerial and financial expertise to launch such a big project that involves private sector franchise investment worth millions of dollars.

(2) PCB could not outsource or privatize the project because there were no qualified buyers for it.

(3) PCB and potential investors felt that unless the event was held in Pakistan it would neither be financially viable nor exciting enough to appeal to the masses. Since no foreign players were prepared to play in Pakistan, the project was considered unfeasible.

(4) This environment was unhealthy for business and franchises and sponsors were wary of investing in any such league. Franchises, sponsors, broadcasters, production houses, event management companies, entertainment providers, ticketing providers, international venues, etc. are all major private entities — in most cases international companies — that are all potential stakeholders in this mega Pakistani project. These companies are wary of the political turmoil and uncertainty in the PCB in the past and only wanted to invest their money and resources in an entity that was stable, transparent and professionally managed. For this, their dealings had to be with an entity that is specialized for the PSL entirely and is not influenced by other matters and conflicted interests.

It is therefore important that the PCB, the government by extension and Pakistani Cricket fans at large understand that these stakeholders make the league happen and that therefore it is important to safeguard their interests and give them the stability and security that they seek in a specialized PSL body, as in other parts of the world.

The launch and holding of the PSL was a positive, monumental step for Pakistan Cricket, but we need to make sure that the right steps are taken to keep this league growing successfully and sustainably so it can return the best possible results for Pakistan Cricket. The setting up of the PSL as a separate entity under the umbrella of the PCB with the franchises having a say in the running of its affairs, as is common across the world, is one of these important first steps.

Q: Did the PCB make a loss or profit from the first edition of PSL?

Ans: PCB invested very little as seed money in the project while the Franchisees invested $9.3m in the form of franchise fee to PCB. Upon conclusion of all PSL accounts, PCB earned $2.6m profit before tax, while the Franchisees, as expected, showed losses on their initial investment. Being cognizant of this fact, PCB reimbursed them to the tune of $2.2m out of its own profits in order to reduce their losses as pledged during marketing presentations before the process of sale of franchise rights. But the franchisees benefited from a significant rise in the value of their assets, called capital gain, by over 100% and they were able to cash in on this dimension by getting major brand name sponsors and media houses on board. It may be noted that 6 out of 8 IPL teams, for example, even after 8 seasons, are still operating under heavy losses. International Sports Management company Repucom recently briefed the PSL franchisees on how much the value of their asset has risen, which has raised the prospect of auctioning more teams at above the values obtained from the earlier round of auctions for the five teams.

Q: Has there been any independent audit of PSL?

Ans: Yes, one of the ‘Top Four’ Chartered Accountant firms is the official auditor of PCB and has also acted as Independent Accountants during the entire bidding process while PCB’s internal audit department is constantly vetting all PSL transactions. Until PSL becomes a separate company, as per the rules, it will be audited by PCB’s internal and external auditors like the other PCB departments. Over and above this, the PCB’s BoG has set up an Audit Committee headed by Mansoor Masood Khan, President of UBL, to oversee all budgetary issues. PCB’s external audit for the year 2015-16 is already complete in which year PSL was a major event and the audited financial statements are expected to be presented to the Audit Committee and to the BOG of PCB in December 2016.

Q: If the first edition of PSL was so successful under the control of the PCB, what was the need to set up a separate company to manage subsequent editions of PSL?

Ans: There are some serious financial and managerial issues at stake that require subsequent handling by a separate company as many such issues become complex with the addition of more teams in the near future.

First, most PCB earnings come from foreign sources, while most PCB expenses are incurred domestically. Thereforefinancial handling is very easy like any other Pakistani exporter. But it is the opposite with PSL in which case, most of PSL income comes from domestic sources while almost entire expenses are incurred outside Pakistan. This requires complex foreign exchange reserves and permissions from State Bank of Pakistan for forex payments to foreign venues, event managers, foreign players, boarding and lodging for teams and officials, etc. The facilities currently allowed to PCB for such foreign payments are simply inadequate to cater for the timely and significant transfers of monies required by PSL which are bound to increase with the addition of new teams, players and longer duration of the tournament in 2018 and subsequent years. A separate company with separate financial permissions from the Ministry of Finance and State Bank of Pakistan will be better geared to cope with this problem.

Secondly, the understanding with Franchisees envisages the inclusion of independent professional managerial and financial expertise for purposes of transparency and neutrality in which meaningful and continuous consultancy with franchisees, who have invested millions of dollars into PSL, is made institutional. There is a need for a dedicated team to supervise this dynamic process and purpose.

Thirdly, the PCB is subject to political hiccups since it is a statutory body with the Prime Minister of the political party in power as the Patron. The PSL, on the contrary, cannot afford to be subjected to political instability because the investment in it is primarily from the private sector. The PSL financial model is a 10 year model, with negative results for the franchisees in the first few years and huge profits in subsequent years. It needs continuity of policies and management to be successful as additional teams are fielded and more investments are made by new franchisees.

Q: Does the PCB constitution allow for the setting up of subsidiary companies like PSL?

Ans: Yes. In fact, the PCB constitution allows PCB to set up subsidiary companies and exhorts them to follow best international practices in promoting the game of cricket in Pakistan.

Q: Are Foreign Leagues also run as separate outfits from the main Cricket Boards?

Ans: Yes. Unfortunately most commentators don’t know this fact. There are variations in the financial and management model but one thing is common: the big Leagues are in the private sector. That is the international practice. Most foreign Cricket boards and their Leagues, eg Australia, England, New Zealand, South Africa, West Indies, etc, are already privately owned and managed. Some Boards have outsourced their Leagues while some run them directly. Some Boards own all the teams while some have adopted the franchise model. For example, the Caribbean Premier League (CPL) is an entirely separate entity, with no control of the West Indies Cricket Boardin it. It is owned by an Irish company, which looks after all its business and operations. In fact the initial versions of similar T20 cricket leagues in the West Indies where the WICB controlled the league were highly unsuccessful tournaments – they were also marred by corruption and lack of transparency issues. The same was the case in the initial version of the BPL (Bangladesh Premier League) that was fully managed by the BDCB. The IPL in India similarly, although still part of the BCCI, has come under a lot of financial scrutiny and scandal over the last few years, and one of the major reforms the Lodha Commission (formed by the Indian SC to investigate and purge Indian Cricket of corruption) has proposed is to create separate entities for the BCCI and the IPL. (http://www.mid-day.com/articles/lodha-committee-recommends-separate-governing-bodies-for-bcci-ipl/16831167). The Big Bash in Australia, the only other major league where the board – which is privately owned — controls all affairs, is not a franchise-based model at all and does not have separate owners running the various teams.

In fact Cricket is just a drop in the vast sports business world and franchise leagues have existed successfully across the world in various sports for decades. The EPL (football), NFL (American Football), NBA (Basketball, MLB (Baseball), LaLiga (Spanish Football) etc are all separate entities from the national governing body of their sport in their respective countries. These leagues are operated and run entirely by the franchises and teams that come together to form these respective leagues, by a board of directors and operative executive teams whose sole purpose is to oversee the affairs of the league without any other vested interests.

Only Pakistan, Bangladesh and Sri Lanka are statutory government controlled bodies. Even the ICC is a private entity registered as an Offshore Company. So PCB is in fact following the international norms.

Q: What will be the ownership and management structure of the proposed new PSL company?

Ans: It will be 100 per cent owned by the PCB. All profits will accrue to PCB. A majority of its Board of Directors (BoD) will come from the PCB’s BoG. Initially it will have three PCB BoG directors and two outside professional directors, which means that the majority will rest with PCB. One of the three PcB BoG directors (Shakil Sheikh representing Islamabad) will represent the Regions, one (Mansoor Masood Khan representing UBL) will represent the Departments and one (Najam Sethi) is the nominee of the Patron of PCB. The Honorary Chairman of PSL will be from among the outside directors (Arif Habib or Zia Rizvi) while the executive CEO/MD will be appointed as per applicable company law and SECP Rules. The COO (Subhan Ahmad) and CFO (Badar M. Khan) of the PCB will be Ex-Officio members of the PSL Executive. There will be an Advisory Council of PSL comprising nominees of the Franchisees. The branded teams will be the property of the PSL/PCB in possession of the franchisees.

Q: What was the criteria for choosing the two outside Directors?

Ans: PSL PVT Ltd requires expertise in business and financial management and tax matters since its earnings and expenditures are mostly out of Pakistan. We have chosen Mr Arif Habib for his business acumen and Mr Zia Rizvi for his tax and revenue expertise. The CVs of both are attached herewith. One of them is from Karachi and the other is from Lahore.

Q: When will the Company be incorporated with SECP and become fully functional?

Ans: The relevant application for creation of the new company will be submitted to SECP soon. It is likely to become fully functional after PSL 2 in March 2017.

Q: Why can’t the PSL be held in Pakistan?

Ans: Leagues like the PSL require the participation of top international players to be exciting and competitive. This is what sets it apart from other domestic cricket tournaments and it is the participation of the top international players that justify the high prices that were paid by the franchisees for the teams, and that will keep adding to the values of the sponsorships and broadcasters. Unfortunately, in the current situation with terrorists targeting civilians especially foreigners, foreign players are not ready to risk life or limb by playing a long series in Pakistan at several venues. So the UAE will be home away from home until terrorism is eliminated and international cricket can return to Pakistan.

Q: How can you then hold the final of the PSL in Lahore?

Ans: It is only one match and only one venue for one day only. We need to provide security to only 10 foreign players for only one day. We can fly them in and out. The Punjab government and PCB have already demonstrated how they can jointly make foolproof security arrangements — the Zimbabwe series last year in Lahore lasted nearly 10 days and was a great success. We are now actively planning the event. The PCB has imported four bulletproof buses for the security of the two finalist PSL teams. We will have over 5,000 security people from the police, elite force and Rangers guarding the teams, stadium and airport and routes.

Q: What if there is another terrorist incident that scares away foreign players at the last minute?

Ans: We will have a standby pool of foreign players who can be drafted to replace any foreign player who pulls out at the last minute from the two finalist teams.

Q: What if no one is ready to play in Lahore regardless of financial incentives and guarantees about security?

Ans: Then we will play the final in Dubai. We have made arrangements for such an eventuality too.

Q: Why was the Draft of the 2nd PSL edition held in Dubai and not in Pakistan?

Ans: The Player Draft for Season 2 took place in Dubai for several critical reasons. (1) This was done for logistical reasons since most of Pakistan’s nationally contracted cricketers were in Dubai at that time for our home series against the West Indies. It was important to include them in the draft for PR and PSL branding purposes. (2) In addition, a number of international stars such as Sir Viv Richards, Chris Gayle, Kevin Pietersen, Darren Sammy and Ravi Bopara agreed to join the PSL Draft in Dubai in order to give it mega star value. This drew huge interest from the corporate sector. If the draft had been held in Lahore it would have been a lacklusterevent without the cricket stars and sponsors and advertisers would not have been encouraged to support PSL.